The Fed announced that they will buy a total of $850 to $900 Billion worth of Treasury securities through the end of the 2nd quarter of 2011.
$600 Billion of this will be new money…the remainder is the reinvestment of portfolio cash flows.
They will distribute their purchases per the following schedule (from the FRB NY website):
Market activity thus far has been interesting. The long end of the Treasury curve is left out in the cold…they won’t be buying much there at all. As you might expect the long end has sold off a good bit. I looked at the 30-year just before the announcement and it was up almost a point. Since the announcement it has given up that amount…and then fallen another point and a half to trade at 4.03%. The market knows that the long end will receive no support so there is no point in being there.
The short end of the curve (the 1 to 10 year range) is also undergoing some interesting changes. The 10-year Treasury actually pulled back (down in price, up in yield) after the announcement. Prior to the announcement it was trading at a 2.53% and it is now at a 2.60%. I’m not sure what is driving the pullback…there is a LOT of noise in this market. The Fed is clearly on a mission to drive rates lower so it would seem that any pullback to higher rates in here will be short lived.
Time will tell…but the Fed has shown their cards. They are betting on lower rates, they are willing to spend a LOT of money to it done, and they can print as much money as they need to stay in the game.
If you have any questions or if there is anything I can be doing for you just let me know.
Steve Scaramastro, SVP
800-311-0707
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